Michigan wins battle to block Columbia/HCA from joint venture with non-profit hospital
MI Non-Profit Hosp. Battle
With millions of dollars in charitable assets at stake, attorneys general in a number of states are increasing their scrutiny of nonprofit hospitals that plan to convert wholly or partly to for-profit status.
In Michigan, the attorney general has just won a court battle to block Columbia/HCA Healthcare Corporation’s plan to buy a half interest in the non-profit Lansing-based Michigan Capital Healthcare.
A county circuit judge ruled that the proposed 50-50 partnership was illegal because Columbia/HCA, the largest for-profit hospital chain the country, could earn a profit on its 50% share in the non-profit hospital system.
Not appropriate
"I do not believe it is appropriate to take these assets and commit them to a profit-making joint venture," Ingham County Circuit Judge James R. Giddings says in his ruling.
He noted, however, that it would be legal for the hospital to sell outright all or part of its assets to a for-profit chain, as long as the sale was consistent with the health system’s corporate charter and Michigan law. Under the proposed joint venture, Michigan Capital would have remained non-profit, according to a hospital spokesperson.
Columbia/HCA brought to the deal its purchasing power, information systems and outcomes expertise, as well as an infusion of $20 million into Michigan Capital for debt relief, equipment and facilities improvements.
A 10-count complaint filed by Attorney General Frank J. Kelley in June alleged, however, that the proposed transaction violated Michigan law, including provisions that require notice and disclosure of information to the attorney general.
Michigan Capital Healthcare has said it will appeal unless the judge reconsiders his Sept. 5 ruling.
The ruling has drawn substantial interest from other attorneys general across the country as states seek to ensure that the purchase price in such transactions is fair, that the proceeds are used for charitable purposes, and that the public benefits.
"States are looking at ways to regulate this (area) and ensure that consumers get their fair shake out of these conversions," says Laura H. Tobler, a research analyst at the National Conference of State Legislatures.
With insurance regulators often lacking jurisdiction in hospital conversions, oversight generally falls with state attorneys general.
A California law, which takes effect Jan. 1, will require the attorney general’s office to approve any non-profit hospital sale or transfer of assets before the deal can close. It also requires at least one public hearing.
In Nebraska, the Nonprofit Hospital Sale Act requires a for-profit interest to obtain approval from the state attorney general and the Department of Health before acquiring a non-profit hospital or a controlling interest in it. The law also requires a hearing and makes financial information about a sale available as public records.
More legislation next year
Other states are expected to consider similar bills in their next legislative sessions.
"The AGs frequently take the position that these are very important transactions under charities law for several reasons: the significant amount of charitable funds involved, the impact that these transactions have as precedents in charities law and because of the health care implications," says Richard C. Allen, chief of the Public Charities Division in the Massachusetts attorney general’s office, which helped organize a conference on conversions this past summer.
The Massachusetts attorney general’s office often has placed conditions on transactions it has reviewed, such as the recent sale of St. Vincent Healthcare System to OrNda HealthCorp, a Tennessee for-profit chain. The attorney general’s office gave its blessing after the parties agreed to oversight by a community task force and to continue St. Vincent’s commitment to free care.
"Generally speaking, my sense is that both the for-profit buyer and the non-profit seller, all of whom have an interest in getting the deal concluded, have an interest in working with the attorneys general," says Chet Horn, deputy attorney general assigned to California’s Charitable Trust Section. "When that’s the atmosphere, generally it’s easier to get things done."
The Michigan court’s decision was applauded by Linda B. Miller, president of the Volunteer Trustees of Not-For-Profit Hospitals in Washington, D.C, an organization that is pushing states to be more aggressive in the oversight of non-profit hospital conversions. The voluntary trustees’ organization is advocating advance review and approval by an attorney general of any fundamental change in corporate purpose as well as prior court approval of any such changes by a nonprofit.
With Ms. Miller as its impassioned spokesperson, the organization is concerned that hospital deals are negotiated behind closed doors, giving communities little or no opportunity to judge the transactions or to understand what will happen to assets accumulated over decades of charitable giving and hospital billing, not to mention the services being provided to the community.
"What happens when Columbia is no longer the darling of Wall Street?" asks Ms. Miller. "What happens to their health care facilities?" If margins are tight, will the for-profits shut down unprofitable services such as AIDS and burn centers, neonatal units, emergency rooms or free care for the poor? she asks.
Jeffrey R. Prescott, spokesman for Columbia/HCA, which owns 340 hospitals nationwide, scoffs at the suggestion that these agreements are bad for communities. He says Columbia/HCA’s financial resources and commitment to quality allow a hospital to do more for a community—not less. "I would challenge anyone to show you an example of where a community is worse off," he says.
In the first eight months of 1996, HCA/Columbia closed deals on 18 health- care facilities for a combined total of 3,501 beds. Fourteen of the 18 health care facilities were tax-exempt. Of the 18, eight involved joint ventures.
Contact the Michigan attorney general’s office at 517-373-8060 or Mr. Prescott at 615-327-9551.
This article was written for SHW by Bryan Pfeiffer, a Vermont-based health-care writer.
Michigan wins battle to block Columbia/HCA from joint venture with non-profit hospital
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